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GRA Gone Wild

Jun 16, 2017 Features / Columnists, Peeping Tom

The Guyana Revenue Authority, to use cricketing parlance, is stepping too far out of its crease, a sure sign of confusion within the tax agency about its fit and proper role. This muddle is often the result of the politicization of the functions of an office.
In a press release, the GRA said that it has observed that a number of businesses have not been passing on the 2% reduction in VAT to consumers. The GRA is of the view that some businesses have used the reduction of the VAT to increase their profits at the expense of consumers.
But just what concern is this to the GRA? Since when is it a concern of the GRA what businesses do in the context of a tax reduction? Since when is GRA arrogating to itself a role to determine that businesses have to reflect reduction in taxes in a reduction in the prices of the goods and services they offer.
It is no business of the GRA if businesses refuse to reduce their prices, so long as they do not rob the government of taxes. The GRA has no legal mandate to decide the prices at which a business should sell and whether they should decrease their prices in the face of a tax reduction.
Guyana has a free market system. Businesses are free to set their own prices. It is no business of the GRA whether businesses refuse to pass on the reduction in VAT. Once the correct VAT of 14% is paid, it is no consequence to the GRA whether the importers increase their profits by refusing to reduce their prices by 2%.
The market has a way of correcting itself. Those who refuse to pass on tax reductions are eventually going to face competition from other companies. This is how the market works. There is no need for the GRA to be concerned about pricing policy within a market economy. Competition will drive prices down.
In any event, a 2% reduction in VAT was always going to be negligible. The government ought to have known this when it took almost two years to reduce the VAT by a mere 2%. It is hard to ask a company to decrease their prices by 2%, unless you are dealing with an item which is priced in six figures.
The danger in the GRA’s statement is two-fold; it suggests that the GRA is venturing into an area in which it has no legal mandate. The GRA should concern itself with collection of taxes and not be concerned with consumer protection. The Ministry of Trade has a desk which is supposed to be undertaking surveillance of prices in the economy.
The GRA threat of sending its enforcement officers to businesses to see that the law is being complied should never have been juxtaposed with a statement about VAT reductions not being passed on to consumers. It will create a feat in the minds of businesses that the GRA is targeting them because they have not reduced their prices. Such things are associated with authoritarian countries, not democracies.
The GRA, of course, has suffered a shortfall in VAT collection. It is seeking to increase its revenues to compensate for that shortfall and has to find an excuse for the shortfall. The scapegoat is the claim that businesses are cheating consumers. And if they are cheating consumers, they may well be cheating on the taxes.
The GRA should go after the tax cheats but not try to do this on the basis that businesses are not passing on VAT reductions.
The GRA cannot be expected to collect more taxes from a shrinking economy. Business is down. Those who pay their taxes are being crowded out by those who do not pay. For every person who has a business and pays taxes, there are about ten vendors who do not. There is unfair competition.
The GRA should be concerned with unfair competition because the established businesses are being unsold by illegal businesses that are not paying taxes.
GRA should be concentrating on regularizing the informal economy. Not going beyond its legal mandate by being concerned about the passing on of VAT reductions. That is none of its business.

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